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| What are this week’s market risks or opportunities? |
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| Microsoft just had its worst single month since December 2000. The stock fell 18% in June, wiping hundreds of billions off its market cap and dropping it to fourth place globally, behind Nvidia, Alphabet, and Apple. Shares now sit about 30% below their all-time high of $555.45. |
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| That's brutal. |
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| Is Microsoft being punished for something it did, or just standing where the market swung first? |
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| Start with what Microsoft did: it guided to $190 billion in 2026 capital expenditure, up 61% and well above the $155 billion Wall Street expected. Microsoft blames pricier components, not more capacity, but the market priced it as a bigger, open-ended bet. |
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| That capex number arrived on top of a broader repricing: a hawkish Fed meeting in mid-June reset how markets price any multi-year bet, and the two pressures compounded. |
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| So Microsoft's business hasn't changed, but the price of financing its future did. If that gap between price and business is real, the math should show it. |
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| Which trades should I consider? |
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| Assuming AI capex was the problem, Alphabet and Meta should be sitting in the same hole. Both are spending as aggressively as Microsoft, and by some measures more: capex has grown 271% at Alphabet and 273% at Meta since 2021, versus 212% at Microsoft. |
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| The dividing line is whether the market can already see the spend turning into cash, not the size of the bet itself. |
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| Microsoft's free cash flow margin has slid from 33% to 25% over the same stretch that Alphabet's has held near 20% and Meta's has climbed back above 22%. |
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| Microsoft's own numbers back that up: revenue grew 18% last quarter, earnings grew 23%, both ahead of estimates. The growth is real, the cash conversion isn't keeping up. |
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| That doesn't mean Meta is off the hook. It's still down 21.4% over the past year, still rebuilding trust after its own cash flow scare. It's earning its way back, not exempt from the same scrutiny. |
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| Should I consider this trade? |
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| Drops this size don't happen often. When they do, they're either a rare mispricing or the start of something worse, and which one this is comes down to the math. |
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| The valuation has gotten more reasonable. Forward P/E sits at 22.2x, below Microsoft's five-year average, with a PEG near 1. Revenue is still projected to grow 16.9% next year, and 55 analysts still call this a Strong Buy with a mean target above $560. |
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| Investing.com's Fair Value model, which blends 17 valuation approaches into one number, puts Microsoft's fair value at $466.81, about 20% above where the stock trades today. |
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| The risk: free cash flow is still shrinking, down 3.3% year over year, and if AI monetization doesn't show up in the numbers soon, the market can keep grinding this lower. So far in July, that doesn’t seem to be happening. |
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| Data correct to 02.07.2026 |
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